May 17, 2012

PHOENIX HEALTH SYSTEMS SEE COST INCREASES FOR EXPANSION PROJECTS

NASHVILLE, Tenn., May 28 /PRNewswire/ -- HealthLeaders-InterStudy, a leading provider of healthcare market intelligence, reports that the collapse of the auction-rate securities market is triggering major cost increases for health systems that have borrowed money to undertake facility expansions. According to the latest Phoenix Market Overview, problems securing reasonable interest rates for variable-rate bonds have forced hospitals to refinance.

"Financing for construction projects has recently become far more difficult in Phoenix as health systems confront the fallout of a deteriorating market for auction-rate securities," said Josh Kelley, market analyst for HealthLeaders-InterStudy and author of the report. "By refinancing, the result is significantly higher costs for capital expenditures that could disrupt plans for construction projects."

As of mid 2007, nine new hospitals were planned for construction in Arizona, and expansions or renovations were planned at 23 hospitals over the next five years. The wave of projects is in response to Arizona's shortage of hospital beds per capita, an area in which the state ranks near the bottom nationally. A study released in 2007 and sponsored by the Arizona Hospital and Healthcare Association found that the state's hospitals planned to undertake $3.3 billion in construction between 2007 and 2011, increasing bed capacity by 2,900, or 20 percent. In the southeast Valley alone, existing hospitals already have expansion plans to add more than 1,400 beds.

Health systems in metro Phoenix, including Banner Health and Catholic Healthcare West, are being forced to refinance these auction-rate securities, which are long-term bonds whose interest rates are based on auctions held every seven, 28 or 35 days, and switch to fixed-rate debt. Health systems with a strong balance sheet, including Banner Health, are riding out the credit crunch without altering plans for construction projects. But health systems in a weaker financial position may be forced to cut back on capital expenditures.

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SOURCE HealthLeaders-InterStudy